While Ophir Energy's Cretaceous Papa well, offshore Tanzania, was a success, results were smaller than pre-drill expectations, leading UBS to reduce its target price slightly on Friday.
Based on the preliminary data available, Ophir management estimated 0.5-2.0 trillion cubic feet (Tcf) in place, although detailed core and petrophysical analysis will confirm the scale of the discovered resource. UBS estimates 0.35-1.4 Tcf recoverable.
"While the Papa well and the implications for the Cretaceous might be relatively disappointing, we think what is much more important is the deepwater Tertiary fan play in block 1. We may get more details on this in November and drilling may take place in December. Ophir will look to firm up resources around Jodari first," the broker said.
"While we believe that additional drilling in 2012 in Tanzania and neighbouring blocks in Kenya should support the shares through 2012, we are more excited about subsalt drilling in Gabon. This should take place next year (Total/Cobalt drilling may de-risk this first). In a success case we see c80% upside to net asset value [NAV] and we think a de-risking brings Ophir into play as an M&A candidate."
UBS's NAV forecasts has been reduced from 835p to 805p due to the smaller-than-expected discovery. With the price target being set at a 10% discount to NAV for "country risk", it comes down to 725p, from 740p previously.
A 'buy' recommendation has been maintained on the stock.
By 10:12, shares were trading 1.75% higher at 531.14p.
Datafeed and UK data supplied by NETbuilder and Interactive Data.
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